Understanding how Value-Added Tax (VAT) is treated on financial services in the UAE is critical for businesses operating within the jurisdiction. Thus, it is advisable to seek the expert services of reputable tax consultants in the UAE to seamlessly implement VAT treatment on financial services and to stay compliant with VAT regulations and standards in the UAE.
The Scope of VAT on Financial Services
The United Arab Emirates (UAE) has established a federal Value Added Tax (VAT) system, which impacts financial services. Businesses registered under the UAE VAT system are compelled to comply with the VAT guidelines set out by the Federal Tax Authority (FTA). Services that are exempt from Value Added Tax include electronic money transactions, supplies between related entities, certain banking services, and insurance against natural disasters. It is also essential for businesses to have an in-depth understanding of filing accurate tax returns and keeping sufficient records to prove any declared information.
Financial Services Subject to VAT
The UAE has issued a guide to clarify the Value Added Tax (VAT) treatment of financial services. Most financial services are subject to VAT at the standard rate of 5%. These include banking services such as loans and deposits, insurance contracts, brokerage fees, investment management fees, and mutual funds. Any differences between the supply price of such services and their market value must also be considered for VAT purposes.
Additionally, capital gains made on transactions relating to financial services may also be subject to taxation under the new regulations if they exceed specific limits set by UAE VAT law. Any taxable transactions should be reported to the relevant authorities, who will then calculate the tax payable.
Certain services are exempt from taxation, such as charitable donations and certain investments into approved funds. The new guide issued by UAE aims to provide clarity on how VAT applies and is collected in respect of financial services. Essentially, businesses should comply with VAT regulations and standards before supplying any financial service-related products or services.
Financial Services Exempt from VAT
In the UAE, there are certain financial services that are exempt from Value Added Tax (VAT). The exempted services include:
- Investment management and custodian services – provided they do not include any other type of taxable service.
- Insurance-related activities such as insurance premiums and reinsurance contracts.
- Interest payments are made on deposits held by banks or other financial institutions regulated by the Central Bank of UAE (CBUAE).
- Interest received on loans given to individuals for non-business purposes.
- Credit card services – provided they are limited to acquiring, processing, billing, reconciliation, and support services.
It is important to note that these exemptions are subject to certain conditions and they may not apply in all cases. Therefore, it is advisable to consult tax experts to apply for any VAT exemption on financial services in the UAE.
VAT-registered companies in the UAE must file their VAT return on time to stay compliant and to avert penalties for noncompliance. VAT consultants in UAE can provide support for businesses during this process, ensuring that all VAT filings are accurate and up-to-date. Additionally, they can help companies to identify potential tax savings opportunities under existing VAT rules which may not have been apparent before.
Avail the Services of Accredited Tax Consultants in the UAE.
It is essential for taxable persons to seek the expert services of reputable tax consultants in the UAE to seamlessly implement VAT treatment on financial services and to stay compliant with VAT regulations and standards in the UAE. Thus, contact us and we shall be happy to assist you.
Ahmad Al Zain
Ahmad is an accomplished legal associate with more than 5 years of experience, he is adept in navigating the complex tax codes at federal, state and local levels. He has immense aptitude in conducting tax investigations and tax litigation. He is well-versed with offering expert tax advisory and handling tax arbitration procedures in international and local jurisdictions. Further, he has comprehensive expertise in drafting a wide scope of tax documents and negotiating intricate tax disputes with the Federal Tax Authority.